Licensee Beware: A lapsed license is risky real estate business
By Summer Goralik
In the world of real estate compliance, one basic rule of thumb is to keep your license in good standing. By good standing, I mean, active, valid, and not subject to any formal disciplinary action. While seemingly simple, the failure to do so may cause regulatory havoc, not only for the licensee who, for example, lets his license lapse or expire, but also for the unknowing responsible broker who neglects to supervise and monitor this area of compliance.
Although there are myriad compliance requirements and issues that impact real estate licensees, the purpose of this article is to highlight the fundamental task and importance of successfully renewing your real estate license. Admittedly, the topic of license renewals could cover several different elements, including the application and/or process itself, the DRE’s required disclosure questions on the renewal form, and of course, the fulfillment of continuing education. However, this piece will focus on unintentional license lapses and/or expirations, and the domino effect of violations which can occur.
While this topic is always important and timely, it just happens that I have witnessed an uptick in such violations. As a real estate compliance consultant and former California Department of Real Estate (“DRE”) Investigator, I am constantly reviewing the DRE’s public enforcement actions. Such actions provide a lot of insight into the types of violations that are taking place in the industry, the non-compliant issues that the DRE finds “formally” actionable, as well as their disciplinary reactions to such matters. After examining some of their recent actions over the last several months, there were a few cases filed in a short period of time involving the engagement of licensed acts by agents whose licenses lapsed or expired.
Additionally, I have been working with several clients who have been contacted by the DRE regarding unlicensed activities engaged by agents with expired licenses. Together, these public actions and DRE investigations serve as the ultimate reminder of simple licensing compliance (keeping your license active/unexpired while conducting licensed activity), but more importantly, the reach of the DRE and their regulatory response to these types of basic failures by licensees.
Admittedly, the best way to educate licensees about license renewals (gone wrong), is to showcase the attendant and problematic scenarios involved which undoubtedly expose licensees to regulatory risk. The following are scenarios that I have recently observed in this area.
For example, if an agent unknowingly lets her license lapse or expire and continues to perform real estate activities, the agent has engaged in “unlicensed activity” in violation of the Real Estate law. Aside from the agent’s unlawful activity, there is potential collateral damage with any license expiration. If the agent has been performing these unlicensed activities on behalf of an affiliated real estate broker, and the broker is compensating this agent for such activities, then the broker has also broken the law. Specifically, the broker is guilty of retaining or employing, and compensating, an unlicensed person to perform licensed acts.
Another example might look like the following. An agent renews his license by completing and mailing in the DRE’s salesperson renewal application (DRE Form RE 209), on time, but incorrectly completes it by accidentally disassociating from his affiliated brokerage. Specifically, the licensee incorrectly certifies that he will no longer be practicing real estate at the time of the renewal, and in turn, fails to complete his affiliated broker information and obtain his broker’s signature. In turn, these actions place the agent’s license status in “no broker affiliation” (“NBA”) status, or essentially, non-working status. It should be noted that if you think you are immune to this type of problem since you renew your license using the DRE’s eLicensing portal (online, electronic licensing system), unfortunately, you are not. This same scenario can happen through eLicensing too, if the questions are answered incorrectly.
Speaking of the DRE’s eLicensing portal, here are a few other examples that I have encountered. Using eLicensing, an agent renews her license, on time, and fails to provide the correct affiliated broker’s license number and email address; or the agent provides the correct information, but the renewal application is never certified by the broker for whatever reason (e.g., the broker didn’t receive the email or inadvertently ignored the email). Either way, the agent unintentionally disaffiliates her license from her broker’s license and places herself in “NBA” status with the DRE.
Now, here’s where this subject becomes more troubling. If an agent accidentally (or not) disaffiliates his license from his broker, transferring his status to “NBA” during the renewal process, the DRE does not alert the responsible broker to this licensing change. Therefore, if an agent believes he has renewed on time and continues to engage in real estate activities on behalf of his brokerage, and the broker is unaware that the agent’s license is no longer active and properly affiliated, then both the agent and broker have inadvertently engaged in violations of the law; unlicensed activity by the agent, and unlawful employment/compensation by the affiliated broker.
As a compliance consultant who has been helping brokers and agents navigate these types of situations and related DRE investigative inquiries, it’s a painful endeavor for the parties involved. Because of these mistakes, the agent, and responsible broker, are facing potential licensing discipline. But, let’s be clear. It’s not just the agent’s fault. The affiliated responsible broker bears some responsibility as well.
It should be strongly noted that a “responsible broker” is required to supervise and monitor, among other things, their agents’ activities and license expiration, which should also include the successful renewal of licenses. It’s not enough to just remind agents to renew their licenses on time. Agents’ licenses should be tracked by the responsible broker to ensure that the proper renewal, and continual affiliation with the broker’s license, are successful.
It is important to mention, whether the agent intentionally or accidentally fails to renew or renew properly, and continues to perform licensed acts on behalf of the brokerage, the result is the same. Both the unknowing agent and broker have engaged in violations of the Real Estate Law. And even if you argue that the violations occurred for only a small period of time, I can assure you that the agent and broker are still at risk of the DRE’s scrutiny, investigation and potential formal action.
In order to prevent such non-compliance and unnecessary regulatory risk, and quite frankly, learn from others’ mistakes, here are some compliance tasks to consider:
All Licensees: Protect your real estate license by simply committing to making sure it is active and valid at all times. I realize that this is an obvious reminder and should be an easy task, but we know from the outline of the above situations, this simple enterprise is apparently not without regulatory risk. By the way, if we have learned anything here, we also know that this task goes beyond making sure that the renewal has taken place in a timely manner (by the agent or affiliated broker), but also includes active confirmation that the renewal process was successful and completed correctly.
Agents: If filing your renewal application by mail, agents should review such forms with their brokers to make sure it is completed correctly prior to submission to the DRE. This will hopefully guarantee that the application is completed correctly and signed by the agent and broker. If renewing your real estate license through the DRE’s eLicensing portal, aside from making sure to answer all questions correctly, agents should also ensure that their brokers certify the renewal application through DRE’s eLicensing portal and continually check their license status to confirm that the renewal was successful. If it was done correctly, the agent’s license status should be active/unexpired, and still affiliated with the broker.
Responsible Brokers: Because brokers cannot expect any warning or notice from the DRE when one of their agents inadvertently disaffiliates from the brokerage through the renewal process, responsible brokers should be monitoring the agent’s license renewal process. Responsible brokers might require that their agents notify the brokerage when renewing their licenses, and make sure that they receive notifications from the DRE to certify their agents’ renewal applications through eLicensing. Additionally, brokers should be checking the agent’s license status after the renewal application has been submitted to the DRE in order to confirm that the renewal process was properly completed and successful. By performing such checks and more closely monitoring agents’ licenses, mistakes or issues, if any, can be quickly identified and addressed, ensuring that all licensees are authorized to perform real estate license activity on behalf of the brokerage.
Please remember, these types of activities are actually part of a responsible broker’s requisite duties under the law. A responsible broker is required to track and monitor their agents’ activities and licensees, and brokerages must have systems in place to ensure that agents are performing licensing activities with active and valid licenses at all times.
Finally, as a bonus exercise, you might make sure, as part of a broker's normal transaction review and approval process, that your brokerage is continually checking and confirming the license status of agents who are engaged in licensed activities on behalf of the brokerage (e.g., taking listings, writing offers, and closing deals).
I realize that this is not rocket science. But it’s obviously not that simple or straightforward otherwise there would be no troubling anecdotes to share. In closing, the first chapter on compliance is to prioritize your real estate license. If a licensee drops this particular ball, you may not get a second chance, or at least not without the headache of regulatory examination and/or the costly impact of potential formal (and public) discipline.
*Summer Goralik is not an attorney and the above article and opinions should not be deemed legal advice. If you have any legal questions or concerns, please contact a licensed real estate attorney.
About the Author
Summer Goralik is a Real Estate Compliance Consultant and licensed Real Estate Broker (#02022805). Summer offers real estate brokers a variety of consulting services including assistance with California Department of Real Estate investigations and audit preparation, mock audits, brokerage compliance guidance, advertising review, and training. She helps licensees evaluate their regulatory compliance and correct any non-compliant activities. Summer has an extensive background in real estate which includes private sector, regulatory and law enforcement experience. Prior to opening her consulting business in 2016, she worked for the Orange County District Attorney's Office as a Civilian Economic Crimes Investigator in their Real Estate Fraud Unit. Before that, Summer was employed as a Special Investigator for the DRE for six years. Among many achievements, she wrote several articles for the DRE, four of which were co-authored with former Real Estate Commissioner Wayne Bell. Prior to her career in government and law enforcement, Summer also worked in the escrow industry for nearly five years. For more information about Summer's background and services, please visit her website, www.expertdrecompliance.com.